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CF2 Solving Problem

Penguin Pucks, Inc. has shareholders' equity of $17,600 and net working capital of $600. Billy's Exterminators, Inc. has net income of $218,400. Earnhardt Driving School had net capital spending of $1,145,000 in 2011. Greystone, Inc. had a change in net working capital of -$150 in 2011. Maria's Tennis Shop, Inc. had cash flow to creditors of -$245,000 in 2011.

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132 views2 pages

CF2 Solving Problem

Penguin Pucks, Inc. has shareholders' equity of $17,600 and net working capital of $600. Billy's Exterminators, Inc. has net income of $218,400. Earnhardt Driving School had net capital spending of $1,145,000 in 2011. Greystone, Inc. had a change in net working capital of -$150 in 2011. Maria's Tennis Shop, Inc. had cash flow to creditors of -$245,000 in 2011.

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Penguin Pucks, Inc.

, has current assets of $4,800, net fixed assets of $27,500, current


liabilities of $4,200, and long-term debt of $10,500. What is the value of the shareholders’
equity account for this firm? How much is net working capital?

To find Owner’s Equity:


Currenet Assets+ Fixed Assets = Current Liabilities+Long term Liabilities+Owner’s Equity
4800+27500= 4200+10500 +OE
OE = $17600
Net Working Capital = Current Assets- Current Liabilites
= 4800-4200
$600
Billy’s Exterminators, Inc., has sales of $734,000, costs of $315,000, depreciation expense of
$48,000, interest expense of $35,000, and a tax rate of 35 percent. What is the net income
for this firm?

Earning Before Tax = Sales- COGS - depreciation-interest expense

= 734K-315K-48K-35K

=336K

Tax = 0.35*336K = $117600

Net Income = 336K-117.6K

= $ 218.4K

Suppose the firm in Problem 2 paid out $85,000 in cash dividends. What is the addition to
retained earnings?

Addition to retained earnings = Net income – Dividends = $250250 – 95,000 = $1552504.

Earnhardt Driving School’s 2010 balance sheet showed net fixed assets of $2.8 million, and
the 2011 balance sheet showed net fixed assets of $3.6 million. The company’s 2011 income
statement showed a depreciation expense of $345,000. What was net capital spending for
2011?

Net Capital Spending is computed as follows:

Ending Fixed Assets


Less Beginning Fixed Assets
ADD Depreciation
NET CAPITAL SPENDING

In this case:

3,600
(2,800)
+345
______
1,145M

ending net fixed assets 3.8- beginning net fixed asset 3.2= 600,000+235000 depreciation expense
and get net capital spending of 835000

The 2010 balance sheet of Greystone, Inc., showed current assets of $3,120 and current
liabilities of $1,570. The 2011 balance sheet showed current assets of $3,460 and current
liabilities of $1,980. What was the company’s 2011 change in net working capital, or NWC?

2010 assets=4560- liabilities 2820=1740


2011 assets= 3320- liabilities 1730= 1590
1590-1740=150 2011-2010 =net working capital

The 2010 balance sheet of Maria’s Tennis Shop, Inc., showed long-term debt of $2.3
million, and the 2011 balance sheet showed long-term debt of $2.55 million. The 2011
income statement showed an interest expense of $190,000. What was the firm’s cash flow to
creditors during 2011?

2010 long term debt subtract 2011 long term debt and add the interest expense to get cash flow to
creditors of -245000

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